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[March 23, 2009]

Merck Serono Launches Venture Fund with $54M Commitment

(BioWorld Today Via Acquire Media NewsEdge) With traditional venture funding scarce and private biotech valuations at historic lows, it's a good time to be a corporate venture fund backed by the deep pockets of big pharma or big biotech.

So far this year, almost twice as many biotech venture rounds have included corporate investment as last year, according to BioWorld research. And Merck KGaA's Merck Serono division is getting in on the action with the launch of its own venture arm, Merck Serono Ventures.

Merck Serono Ventures, unveiled Monday, has an initial commitment to invest up to ?40 million (US$54 million) over five years. The fund plans to focus on therapeutics and enabling technologies in Merck Serono's core areas, which include neurodegenerative disease, oncology, fertility, endocrinology, cardio-metabolic care and specialist therapies, such as autoimmune and inflammatory diseases.

In particular, the fund will seek to invest in biotech start-ups working in the neurodegenerative, oncology and autoimmune/inflammation disease fields.

Spokespersons from Merck Serono Ventures were not immediately available, but the company's news release said the fund will be a "strategic" investor - indicating that its priorities will lean toward establishing relationships that could lead to licensing or acquisitions rather than solely generating financial returns.

Corporate venture funds historically have battled the perception that their investment could create a conflict of interest. The funds are figuratively wedged between their parent companies and the traditional VCs in their syndicates. On the one side, the parent company wants the best terms for a future licensing deal, but on the other side, the VCs want a high-priced deal or - in the best-case scenario - a bidding war that maximizes their return.

Some corporate VC groups have addressed this conflict by drawing a line in the sand and trying to be either a financial investor focused on returns or a strategic investor focused on brokering a deal. But most corporate VCs want to achieve both financial and strategic goals - and they're getting better at doing so in a way that keeps everyone at the table comfortable, said Joseph Amprey, senior managing director at MedImmune Ventures.

"For a while people were skeptical because of the conflict between strategic and financial interest," Amprey said. But corporate VCs are getting much more sophisticated at managing conflicts of interest, maintaining confidentiality and keeping the traditional VCs comfortable, Amprey said - and deal flow is increasing substantially.

"We are being invited into rounds more so than in the past," Amprey told BioWorld Today.

According to BioWorld research, at least 18 biotech venture rounds to close through the first half of March included corporate participation, compared to about 10 rounds in the same period last year.

MedImmune Ventures, which started as part of MedImmune Inc. (now a subsidiary of AstraZeneca plc), has been particularly active - investing in NKT Therapeutics Inc., Hydra Biosciences Inc. and Rib-X Pharmaceuticals Inc.

Amprey pointed to several reasons for the increase in corporate VC activity.

In addition to the growing comfort level between traditional and corporate VCs, the economy is certainly a factor. "I think folks are more willing to have corporate around the table because they need to fill out their rounds," Amprey said.

And while some traditional venture funds are struggling for funding from cash-strapped limited partners, corporate venture funds have capital committed by their parent company. Just as with limited partners, there's always a risk that the parent company could decide not to fork over the committed capital, but that's a "very low risk for us," Amprey said.

He added that MedImmune Ventures has been allocated $300 million thus far and currently has about $114 million available to invest.

With deal flow for corporate VCs increasing, there are also more cases of multiple corporate funds participating in the same syndicate. So far this year, Alios, Rib-X and Anacor Pharmaceuticals Inc. have each closed a round with multiple corporate funds involved.

Amprey said that in the past he got "push-back" at the idea of bringing multiple corporate groups together to invest, but the firms have realized they have to play nice in the sandbox to get the best deal flow. And there are advantages to having another corporate fund in your deal, Amprey added. They might have scientific expertise that complements your own, and they might provide a potential exit for your investment.

"We're not always going to want to license the same asset," Amprey said - and "we're interested in making money on every deal we do." n
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